Tax Credit, I am confused

[bakaroma]

I read the link below and wonder if the urchase of a GX garuntees me the full credit or if it is conditional. Could someone please explain exactly how I apply this? I am hoping to claim an exemption on my withholding and then apply the credit. Would this be a way to go?

http://www.irs.gov/newsroom/article/0,,id=157632,00.html

Here is another link that adds to my confusion.

http://www.irs.gov/irs/article/0,,id=176409,00.html

[Curtis]

Re: Tax Credit, I am confused

The way this thing works is somewhat confusing compared to a tax deduction. You actually have to owe the gov't $4000 at the end of the year, after all other deductions and credits, to get the full benefit.

If you pay the AMT (alternative minimum tax) you can claim nothing and you're done.

It's still early enough in the year to consult your tax professional and adjust your position to maxamize your position. You can not get cash back. If you normally get a refund, see your tax person immediately to reposition yourself for the end of the year. You must owe! I hope this helps.

[bakaroma]

Re: Tax Credit, I am confused

Can it only be taken in the year it was bought or does it extend? Help me understand AMT better.

[taigacarol]

Re: Tax Credit, I am confused

Can it only be taken in the year it was bought or does it extend? Help me understand AMT better.

The 4K Federal credit can ONLY be taken in the year bought. If you max out the Federal Credits, you loose the use of the credit and ther is NO carry over - the 3K Utah credit can not result in a refund, it can only offset the tax you owe and CAN be carried over for up to 5 years. You can change your withholdings to fix this if you buy it early enough in the same year you purchase. We lost our Federal credit on our 08 because of our tax situation - uggh!

[mickey]

Re: Tax Credit, I am confused

Hold the phone!

Let me make sure I understand this, since I'm picking up a new '08 next week.

Federal: I'll get the full $4000 credit only if I'd otherwise pay $4000 or more in taxes. And it CAN result in a refund, right? So I'll get a $4000 check from the Fed?

Utah: The $3000 credit CAN carry over, but cannot result in a refund. Therefore, I need to file a new W4 and reduce my State withholding so that I'll get that benefit eventually?

Good to know. Please correct me if I'm wrong, though.

[John Mitton]

Re: Tax Credit, I am confused

As always, consult your tax adviser, don't just take my word for it!!!
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Federal:

First of all, DON'T CONFUSE ALTERNATIVE FUEL CREDITS WITH HYBRID CREDITS!
They both are claimed on Form 8910, but hybrid vehicle credits phase out as the automaker puts more of them on American highways. Our alternative fuel credits retain their full value no matter how many Civic GX's or EPA certified conversions hit the road. Note that our alternative fuel credits will sunset in 2010 but it is widely assumed Congress will extend them.

Alternative fuel vehicle credits are based on the year the dedicated alternative fuel vehicle system was "placed into service." So if you are the first consumer of a new Civic GX from Honda then the credit is only available to you for the tax year in which you placed the vehicle into service. If you convert a vehicle to become a dedicated NGV using an EPA certified retrofit then you can take the credit in the year the conversion was performed.

Note that the federal credit varies by gross vehicle weight with steps from 4k/$8k/$20k/$32k but for our discussion let's assume $4k as most of us on this chat board will be talking about vehicles under 8,500 lbs.

Here are two examples:
1. Taxpayer's total tax owed before payments and credits (Form 1040 line 44) is $20,000. His employer withheld $26,000 (line 65) so normally he would be expecting a $6,000 refund check. But this year he bought a new Civic GX so he also filed Form 8910 for the $4,000 tax credit. He also installed a Fuelmaker at his home so he filled out Form 8911 to get the $1,000 credit too. These flow to line 55 which shows $5,000 in "Other credits."

Now, thank heavens the number in line 45 (Alternative minimum tax) was zero. Otherwise, the aforementioned Forms 8910 and 8911 would not been filled out as he would not have qualified for the credits under the AMT rules.

Here is how his tax burden would be calculated:
Line 44 = 20,000 (Tax owed)
Line 46 = 20,000 (no AMT for this lucky fellow)
Line 55 = 5,000 (alternative fuel vehicle and refueling credits)
Line 56 = 5,000
Line 57 = 15,000 (line 56 his less than 46 so he is OK using all of the credit)
Line 63 = 15,000 (total tax, assuming no self employment or other taxes owed)
Line 65 = 26,000 (withheld by his employer)
Line 72 = 26,000 (let's assume no children, earned income credits, etc.)
Line 76 = 11,000 (this is the amount of the IRS check sent to him)

2. Taxpayer's total tax owed before payments and credits (Form 1040 line 44) is $3,000. His employer withheld $2,000 (line 65) so normally he would be expecting to pay $1,000 with this return. But this year he bought a new Civic GX so he also filed Form 8910 for the $4,000 tax credit. This flows to line 55 which shows $4,000 in "Other credits."

Now, as he is a lower-income taxpayer it is almost a given that the number in line 45 (Alternative minimum tax) was zero.

Here is how his tax burden would be calculated:
Line 44 = 3,000 (Tax owed)
Line 46 = 3,000 (no AMT)
Line 55 = 4,000 (alternative fuel vehicle credit)
Line 56 = 4,000
Line 57 = 0 (line 56 is more than line 46 so he cannot use all of the credit)
Line 63 = 0 (total tax, assuming no self employment or other taxes owed)
Line 65 = 2,000 (withheld by his employer)
Line 72 = 2,000 (let's assume no children, earned income credits, etc.)
Line 76 = 2,000 (this is the amount of the IRS check sent to him)

So in his situation the GX purchase reduced his tax liability from $3,000 to zero. But he "left on the table" $1,000 that cannot be carried over to future years.

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Utah:
This one is simple. Look at the tax owed on line 16 of the state income tax form TC-40. If it is larger than the total on your TC-40V's (Clean Fuel Vehicle Tax Credit) then list the TC-40V totals on line 17. If it is less than this, you should make sure you only claim up to the number on line 16. Whatever is leftover can be claimed in subsequent years (up to 5 years, I believe). Note that Section C of Form TC-40V is for the taxpayer to complete, and the instructions on the back indicate that a new form must be completed each year for carryover. This form is not included in your tax filing so just make sure if you carry over that you have one TC-40V in your files for each tax year as you use up the credit.

[CivicFamily]

Re: Tax Credit, I am confused

A lot of good information from John and Curtis, just a couple of things to add-

As I understand the Federal 4k tax credit for a Civic GX, the credit is limited to the difference between your calculated AMT tax (which doesn't even show up on the 1040 UNLESS it's greater than your "regular" tax) and what you paid. A reference explaining it very well is

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2007/01/26/EDGC7N75RT1.DTL

The point is that just because you don't pay the AMT, and pay at least $4,000 in taxes, that does NOT mean you get the full $4,000. You only get it if your calculated AMT is $4,000 less than your actual tax.

The other problem is that the AMT (as passed into law back in 1969) would usually hit a lot more people than it has the last few years, but Congress keeps passing band-aid changes to raise the thresholds (last years change was passed in mid December, nearly the last minute). Tough to plan withholding when you don't know until December what the AMT will really be.

If you are single and don't have much in the way of deductions, you have a much better chance of getting the full $4,000 credit-hope it works out for you.